benefits sacrifice

16 Pages·2016·0.6 MB·English

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kpmg.com
www.kpmg.com/uk/reimaginegovernment
Date 20XX
Table of
contents
Let’s reimagine... 04
Where we are 05
Let’s reimagine this whole system... 06
How to deliver the new service 08
Alignment with public policy objectives 10
Going further 11
Addressing the challenges 12
Sumary 14
Reimagine welfare 3
Let’s reimagine…
This paper is one of a series of
thought experiments in which
KPMG staff imagine new ways for
government to achieve public
policy objectives.
This might mean building services
around the user rather than
the provider. Or drawing on the
huge potential of data and digital
technologies. Or tapping into the
power of markets, new incentives,
transparency, or the wisdom of
crowds. In every case, it involves
fresh ideas.
To channel our thinking, we imposed
three rules. Ideas must be designed
Kru Desai to produce better public outcomes
Head of Government & without increasing the burden on
Infrastructure, KPMG in the UK the taxpayer. They must align with
the government’s philosophy and
headline policies. And they must be
realistic and deliverable.
But within these rules we want to
step outside conventional thinking,
and test out new ideas on how public
policy goals can be achieved. We
want to stretch ourselves, applying
new technologies and techniques
to solve old problems. We are not
calling for a specifc future – but
we are reimagining it. What do
you think?
Where we are
It’s a sad fact that those least able to heat and power
their homes often pay the highest prices – for 4 million1
largely low-incomes have prepayment electricity meters,
incurring an additional cost that ranges from £80 to
several hundred pounds a year.2 Even taking the low end
of these fgures, the poorest families in the country are
paying a price premium totalling more than a third of a
billion pounds.
This inequity bites particularly hard in winter, when power
use increases; unlike those paying a fxed monthly direct
debit, households with prepayment meters cannot even
out their electricity costs over the year. Then there’s
the inconvenience and cost of visiting shops to charge
up meter keys, and the harm caused when vulnerable
people simply cannot afford to keep the lights on;
dependence on a prepayment meter is bad news for
many of the poorest in our society.
Yet much of the money coursing through Britain’s
prepayment meters is provided by an organisation with
vast purchasing strength and the country’s best credit
rating: the UK government. Indeed, the government
buys its own electricity at well below retail rates: to
minimise the burden on taxpayers, many departments
and agencies aggregate their purchases through the
Crown Commercial Service (CCS) – which, trading on the
wholesale markets, uses its huge spending power and
specialist skills to achieve the best prices available. So
taxpayer cash which reaches energy markets via the CCS
is stretched to the limit; but those government funds
which instead pass briefy through the hands of beneft
claimants produce far slimmer returns.
Under this system, the poorest in society pay the highest
prices for electricity – and for low-income households,
power represents a big chunk of their monthly outgoings
– and have the lowest security of supply. Meanwhile,
hard-pressed benefts budgets are used ineffciently, so
the DWP must spend more to provide the unemployed
and vulnerable with life’s essentials. And power
companies must maintain an unwieldy and expensive
physical infrastructure of prepayment meters, in a bid to
maintain some level of service for a group they view as
high-risk and low-return.
Reimagine welfare 5
Let’s reimagine this
whole system…
What if DWP claimants could Participants would also beneft providers would much prefer to
elect to put some of their benefts from fxed and predictable monthly be charging lower rates to a less
entitlement into an innovative new outgoings, with their electricity complex and more reliable set
government-run electricity purchasing spending smoothed over the year, of customers.
service, transforming themselves and eliminate the inconvenience
If instead these households’ bills
from some of the weakest of key charging and the risk of
were paid directly by the government
individuals in the marketplace into being cut off. In exchange for these
itself, the whole calculation facing
members of a huge and powerful advantages, they would see a
energy providers would change:
electricity-buying syndicate? Pooling small reduction in their spending
participants would become a very
their buying power with that of fexibility – for with a proportion of
low-risk consumer group, with lower
other claimants and the government their benefts diverted at source into
customer acquisition spending and
itself, they would become partners the scheme, they would draw out
bills handled via an automated central
in a huge trading block – and secure less cash – and a smaller cut in their
system – producing much reduced
much better prices in the market. headline benefts fgure; but their
administrative and payments costs.
spending power would rise.
Not all of those savings would
accrue to the consumers – for the Electricity suppliers should also
government would also share in beneft. For them, prepayment
the savings, enabling it to reduce meters are simply a way to minimise
benefts spending. Given the risk when supplying electricity to
substantial gap between the below- people who may not have the money
market prices currently paid by to pay bills in arrears. The premiums
CCS and the premium charged via charged such customers are spent
prepayment meters, there would be on supporting the infrastructure of
plenty of savings to go round. meters and charging points; most
Reimagine welfare 7
How to deliver the
new service
The service would aggregate participants’ electricity
purchases, perhaps channelling them through the CCS
systems already established to take advantage of the
best possible wholesale market rates.
The scheme would initially be linked to a single beneft,
though it could be expanded later to include others.
Participants would be required to ‘sacrifce’ enough of
their monthly benefts to cover their household’s average
monthly electricity use over the previous year – a fgure
smaller than previous years’ spending, thanks to the
discounted rate achieved under the scheme. The lion’s
share of this ‘sacrifced’ money would be spent buying
electricity on wholesale markets, with a smaller sum
returning to the DWP or Treasury.
If participants’ electricity use began to rise during the
year after they joined the service, threatening to outpace
their contributions and leave the government out of
pocket, the system – which would track both electricity
use and benefts sacrifced – would ask them to raise
their monthly payments to cover the difference.
Benefts claimants would access the service via a GOV.
UK web page or an app, both of which could verify
eligibility with the DWP and keep users informed on
market prices and their cumulative savings. Those unable
to access or use these technologies could instead call
a telephone helpline, but the government would aim
to make the digital services so easy to use, quick and
convenient that they become by far the most popular
channels. These goals would be aided by the use of
citizen-centric design, the deployment of emerging cross-
government technology platforms, and the application of
Government Digital Service expertise and standards.
GOV UK
Single benefits
Electricity meters Sacrifice benefit
Cannot spread electricity Spread electricity costs
evenly costs over the year evenly over benefit payments
Crown Commercial Service (CCS)
Buy electricity on wholesale
Electricity purchased
markets with a smaller sum
at a premium rate
returning to the DWP or Treasury
Total cost of electricity Total cost of electricity
Reimagine welfare 9
Alignment with
public policy
objectives
As well as the advantages for consumers, suppliers and
the government listed above, this system could produce
a range of further public benefts. The most obvious of
these include:
By reducing energy costs, smoothing payments Integrating this approach with the government’s
over the year and preventing ‘blackouts’ when winter fuel payments system could reduce the
participants can’t afford to recharge their keys, the latter’s administrative and service delivery costs;
service would help the government realise its goals
around reducing fuel poverty;
The system could provide a helpful channel for Collecting data on individuals’ spending and their
energy providers to meet their Energy Company use of services, the government could – with the
Obligation (ECO2) requirements, further supporting right consents in place – gather evidence to inform
work to tackle fuel poverty and producing more future policymaking, improve its targeting of advice
energy savings for the poorest consumers; and support services, and identify the most effective
ways of reducing energy use.